Inflation pressures ease, prompting rate cuts in frontier markets: Fitch Ratings

October 17, 2023 (MLN): While some central banks in frontier markets (FM) continued to tighten policy in the past quarter, an increasing number of rate-setters are now cutting policy rates given waning inflationary pressures, as highlighted in Fitch Ratings’ latest Frontier Vision chart pack.

In contrast to the “higher-for-longer” policy stance of central banks in many developed markets, six FM central banks decided to lower interest rates in 3Q23, as annual CPI inflation rates have fallen significantly.

Papua New Guinea and Paraguay recently joined central banks in Armenia, Costa Rica, Georgia, and Sri Lanka that cut rates earlier in 3Q23.

A number of FM central banks have kept rates on hold as policymakers assess the impact of past policy rate hikes.

By contrast, seven FMs have raised rates. Nigeria, which has to contend with soaring CPI inflation at an 18-year high of 25.8% YoY in August and a naira that weakened against the US dollar since its devaluation in June, hiked rates by 25bp to 18.75% in July.

Monetary authorities in Ghana, Jordan, Rwanda, Zambia, and the Central Bank of West African States (whose members are Cote d’Ivoire and Senegal), have also maintained their tightening cycles and raised rates again in 3Q23, amid still-elevated inflation rates and in some cases weakening currencies and decreasing FX reserves.

Vietnamese GDP outturns for 3Q23 point to the strongest growth rate this year, at 5.3% yoy, despite a struggling export sector.

However, the high-frequency data point to growing challenges in other FMs in 3Q23, as reflected in monthly readings of industrial production and trade; and subdued consumer confidence in Pakistan.

Fitch's quarterly ‘Frontier Vision’ chart pack tracks high-frequency macroeconomic data for the countries included in the J.P. Morgan Next Generation Markets Index.

The charts cover five years of historical data and the choice of data series has been harmonized as far as possible across all countries to facilitate comparisons.

The index comprises countries representing sub-Saharan Africa, Latin America & the Caribbean, the Middle East & North Africa, Europe, Asia and Oceania.

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